Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements

by Refet S Gürkaynaka,c, Brian Sackb and Eric T Swansonc

Abstract

We investigate the effects of U.S. monetary policy on asset
prices using a high-frequency event-study analysis. We
test whether these effects are adequately captured by a single
factor-changes in the federal funds rate target - and find that
they are not. Instead, we find that two factors are required.
These factors have a structural interpretation as a "current
federal funds rate target" factor and a "future path of policy"
factor, with the latter closely associated with Federal Open
Market Committee statements.We measure the effects of these
two factors on bond yields and stock prices using a new intraday
data set going back to 1990. According to our estimates,
both monetary policy actions and statements have important
but differing effects on asset prices, with statements having a
much greater impact on longer-term Treasury yields.